Biden and dealing with the Chinese trade war
When President-elect Joe Biden is inaugurated days later , he will act quickly to change most dimensions of American politics . The blatant exception would be China . But if Biden maintains the confrontational approach that outgoing President Donald Trump has taken in dealing with the world's second-largest economy, he will regret it.
Although Biden may be less vocal about his hostility toward China than Trump , he echoed many of his predecessor's complaints about Chinese business practices , accusing the state of stealing intellectual property , flooding foreign markets with their products , and pressuring American companies to transfer their technology to Chinese companies . He indicated that he would not immediately abandon the first phase of the bilateral trade agreement reached last year , or remove 25 percent of customs duties , a proportion that now affects about half of China's exports to the United States .
Biden prefers not to make any significant changes to the ongoing approach to China until he conducts a complete review of the current agreement, and consults with America's traditional allies in Asia and Europe, in order to develop a coherent strategy. Biden's US trade representative, Catherine Tay, who is an American business attorney of Asian descent, speaks fluent Mandarin, and has extensive experience in China, may play an important role in the review process.
However, a thorough examination should not be undertaken to see that the high tariffs and the first phase of the agreement are fundamentally incompatible. In the past two years, China's exports to the United States subject to additional tariffs have risen from an almost negligible percentage to more than 70 percent. The share of tariffs in US exports to China rose from 2 percent in February 2018 to more than 50 percent two years later.
During the same period, the United States implemented 11 rounds of sanctions against Chinese entities. Last month, 59 Chinese entities, including companies and individuals, were added to the US Commerce Department's list of entities whose exports are controlled, bringing the total to 350, the largest number for any country.
With such high costs and strict export restrictions, China cannot fulfill its commitment contained in the Phase One Agreement, whereby it pledges to purchase about $ 200 billion of additional US goods and services in 2020-2021. Since January 2020, the rate of exports has been America to China far below the targets of the deal. As a result, in November 2020, China met only 57 percent of its annual purchase obligations.
China's options for accelerating progress are very limited. The private sector, which accounts for roughly 80 percent of Chinese demand for US imports, cannot simply be instructed to buy American goods with such high tariffs. And forcing SOEs to endure recession will have consequences.
The conclusion is clear: As long as Biden supports Trump's confrontational approach, the first phase of the agreement will be essentially impractical, and further progress toward a mutually beneficial trade relationship will be nearly impossible. Even bilateral trade could collapse
What the Biden administration needs is to remove tariffs only, and the first-stage agreement has major flaws, especially as compliance with it will force China to reduce imports from other countries. By giving the United States a major advantage at the expense of China's other trading partners, the agreement could violate the World Trade Organization's principle of non-discrimination.
Other countries are trying to provide equal opportunities. At the end of 2020, the European Union and China concluded a comprehensive agreement on investment, and all ten countries of the Association of Southeast Asia signed the Comprehensive Regional Economic Partnership, along with China, Japan, South Korea, Australia, and New Zealand.
None of this is in America's interest. The East Asian Association countries, which together make up the fourth-largest market for America's exports, are likely to transfer more trade to their RCPA partners. This shift will be reinforced by the agreement’s lack of labor and environmental standards that appear in agreements with Canada, Mexico, and the United States.
The Regional Comprehensive Economic Partnership is also likely to increase Chinese demand for agricultural exports and energy from Australia and New Zealand. By creating a free trade area between China, Japan, and South Korea, indirectly, the so-called Iron Triangle, this partnership will support supply chains in Northeast Asia and the Western Pacific. This puts the United States in a strategic position that is increasingly flawed.
Instead of adhering to Trump's confrontational policy with China, Biden should accept China's central role in the global economy and seek a mutually beneficial, non-discriminatory trade agreement. China's efforts to join the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership that arose out of the Trans-Pacific Partnership, after Trump abandoned it upon taking office four years ago, could provide an important opportunity in this regard.
The Biden administration promises a new beginning for the United States and its relations with the world. To fulfill this promise, he must end the disastrous trade war that his predecessor waged against China.